3 Types of Mobile Payments

In blog three of a series we explain three types of mobile payment technologies.

This year, you can expect to see a renewed interest in innovation. We’re already seeing an increasing number of mature, established industries experimenting with new business models.

So what’s driving the urgency around innovation? Several reasons, including a need to:

  • Avoid disintermediation in industries with low frequency of customer touch points.
  • Search for ways to drive more dollars through digital channels such as mobile and online.
  • Develop new business models, often via selling products or services directly to customers, while reducing channel conflicts and reliance on distribution partners

One of the biggest challenges with innovating around a new business model is monetizing the product or service. This is where mobile payment technologies are becoming an ideal, low-cost option.

Brief History of Mobile Payments

To understand the future of mobile payments, take a look at how our methods of purchasing goods and services has evolved over time.

Throughout history, we have relied on some sort of payment system. It started with bartering systems and exchanging precious metals such as gold, silver or copper. And, it eventually transitioned to paper-based currencies, cash, checks and credit cards.

In an increasingly digital mobile world, the payment systems we use have evolved into three types of mobile payment options:

Option 1: Mobile Commerce

Mobile commerce payment options are quite similar to the traditional eCommerce business.

The customer:

  1. Opens an internet browser and logs into an eCommerce website portal.
  2. Adds items to a virtual shopping cart.
  3. Uses ID and Password to authenticate and authorize the payment transaction.
  4. Receives goods or services and a receipt.

Mobile Commerce platforms require a significant upfront investment in technology infrastructure, making them more suitable for eCommerce business models.

Option 2: Mobile Payments

With mobile payment options, customers use contactless technologies or proximity-based sensors such as Near Field Communication (NFC). For the customer, here’s how it works:

  1. A highly secure, encrypted digital software token is stored on your mobile device. This token replaces your credit or debit card or bank account number for all mobile payment-enabled financial transactions.
  2. Mobile apps which support mobile payment features can request access to this secure token to buy, sell or transfer money
  3. A confidential PIN or fingerprint scan is required to authenticate and authorize the payment of funds for each transaction.

Mobile payments do not require the level of investment in technology because much of the payment processing is handled by reputable, established third party payment processors such as Chase, Bank of America, Square and Vantiv.

For the past few years, mobile payment technologies have been widely deployed at grocery stores and fast food restaurants to enable faster, easier purchases at point of sale. Yet mobile payment features can be added to most any type of application, without a credit card terminal or dongle.

As a result, many industries are adding mobile payment features to drive more dollars and transactions into the mobile channel. Examples include:

Option 3: Mobile Wallets

Mobile wallets are an expansion of mobile payment technologies. Their goal is to replace your physical wallet by storing additional payment-related information:

  • Loyalty cards
  • Coupons, discounts and promotional offers
  • Tickets and passes for functions such as sporting events, concerts and movies
  • Peer-to-Peer payment services, which facilitate fund transfers between people

The Evolution of Mobile Payments

In 2016, we saw increasing adoption of mobile payments, largely sparked by big technology vendors such as Apple and Google, financial services providers such as Chase Bank and Wells Fargo, retailers such as Walmart and fintech specialists such as Square and Venmo.

The results have been impressive. According to eMarketer:

  • Mobile payments in the USA will more than double in 2017 to $62.49 billion.
  • Approximately 25% of adult smartphone users in the USA used their devices at least monthly to either send or receive money in 2016. That number is predicted to climb by an additional 32% in 2017 and 25% in 2018.

So what does this mean for mature, established industries experimenting with new business models?

In my next article, I’ll explore new business models that innovators are using to experiment with mobile payment technologies.

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Jason leads the Digital consulting practice, one of Centric’s fastest growing service offerings. Jason is passionate about re-imagining the customer experience around digital touch points, accelerating digital transformation and helping clients understand and respond to digital disruption.

Jason has nearly 20 years of experience in business and technology leadership roles in industries including consumer products, healthcare and financial services. Follow Jason on Twitter.

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